What Must Happen for a Business to Make Money?
How do strangers become happy repeat customers?
When a person experiences a problem that a business can solve, what brings them from stranger to potential customer to customer to happy repeat customer? Though the breakdown might be intuitive or obvious, there’s value in naming the steps that a business must take or undergo to make money and to make a positive difference in the world.
While there are many different formulations of these steps — for example, AIDA — that are used as part of modeling sales funnels, this one is our own. We specifically focus on a customer lifecycle that does not end at ‘sale’, because it’s one of our most deeply held beliefs about how business should be done.
The Steps
These steps aren’t necessarily linear, and don’t always apply in every situation. For example:
- A customer comes to trust a business before they have a problem to be solved;
- Sometimes there’s no negotiation, there’s just agreement and payment;
- Sometimes customers don’t know what their problem is before they begin evaluation.
These steps describe a common pattern of interaction, and aren’t a strict prescription for how business should be conducted.
Discovery
A potential customer discovers the business exists and what it does.
Evaluation
The customer reaches out to or visits the business (or through a proxy like a website) and begins to identify the business as a solution to their problem. Sometimes, the business helps clarify what the problem specifically is and its cost.
Trust Formation
The potential customer establishes the minimum amount of trust to come to desire making an agreement. Different agreements require differing amounts of trust!
Negotiation, Agreement, and Payment
The business negotiates with the customer to reach a satisfactory agreement for goods or services, and the customer pays for the service or good (before or after delivery).
Performance and Delivery
The business performs the service or delivers the good.
Post-Delivery
Both business and customer review the interaction and update their thinking. The business aims to ensure their service or product is satisfactory enough that the customer returns in the future for the same or a similar problem, and acts to increase the chance of repeat business. The customer evaluates the value of their purchase and the trade-offs made in purchasing, sometimes comparing it to alternatives.
Why does this matter?
For our clients (and for all businesses), it’s important to have a framework (or several) to evaluate opportunities and past choices. Viewing the customer lifecycle as a phased process allows for analysis of the phases and customer flow between them so the business can identify bottlenecks and areas of strength and weakness.
We find this useful as software consultants because it gives us a shared language to talk to our clients about potential outcomes for any given project. While there are other reasons why you might elect to do a project, this flow is the lifeblood of business. The impact on each of these steps is a big consideration in whether a project is worth doing!